Government Finances

Argentina's Tax Man Toughens His Collection Tactics

Ricardo Echegaray, head of Argentina’s Federal Administration of Public Revenue

Tax authorities in Greece, where evasion is a national sport, may want to borrow a page from Argentina’s playbook. South America’s second-largest economy managed to boost federal tax collection from 16.5 percent of gross domestic product in 2002 to 31.8 percent in 2012, according to data from the Center for the Implementation of Public Policies Promoting Equity and Growth, a research center in Buenos Aires. That puts Argentina on a par with nations such as the U.S. and the U.K.—an impressive achievement for a country with a still-thriving underground economy. About one-third of Argentina’s workers are paid under the table.

So perhaps it’s fitting that Ricardo Echegaray, the head of the Federal Administration of Public Revenue (AFIP), Argentina’s version of the IRS, enjoys the distinction of being the country’s highest-paid functionary. His 2011 take-home salary of 1.2 million pesos (about $241,000) was about four times that of President Cristina Fernández de Kirchner. Sitting in his office in a 1930s-era building overlooking the Plaza de Mayo, a Buenos Aires landmark, Echegaray is happy to expound on the central role of his agency. “Argentina is not taking foreign loans these days,” says the onetime naval officer. “As such, there would be no state policies without tax collection. The entire Argentine government requires an agency like the AFIP to act.”

AFIP’s evolution into one of Latin America’s most efficient tax collection agencies is all the more remarkable considering its reputation for patronage and nepotism. A few vestiges of the old days endure. The position of tax collector is partially hereditary. Following a practice enshrined by a 1973 union agreement, the agency must attempt to hire the widow or child of an agent who dies while in service. A spokesman for AFIP says only 1 in every 30 vacancies is filled that way nowadays.

Argentina’s rising tax receipts are partly a function of the boom that followed the 2002 devaluation and new levies on financial transactions and exports. The agency has used technology creatively, too. A little more than a decade ago, it began cross-checking farmers’ records against satellite images to ensure they weren’t underreporting their landholdings or harvests, a program that AFIP says turned up 138 pesos in unreported tax income for each peso invested. Thanks to the deployment of an almost panoptic computer system, “today they have information about taxpayers in terms of properties, cars, investments, bank deposits, credit-card spending,” says José Arnoletto, president of the Professional Council of Economic Sciences of the province of Córdoba.

Now, with Argentina’s economy slowing—growth dipped to 1.8 percent last year, from 8.9 percent in 2011, according to the Argentine government—the AFIP is tightening the screws. In 2012 it began deploying dollar-sniffing dogs at border crossings to deter capital flight. As of January, Argentine retailers who sell used merchandise have to register their inventory with the AFIP.

More controversially, the agency has used taxpayer data it collects to attack some government critics. “What’s happened in the last six months is that the AFIP is modifying the rules to affect specific groups and specific individuals,” says Claudio Loser, an Argentine economist who is a fellow at the Inter-American Dialogue in Washington. “They’re using it as an authoritarian political tool.”

In August, Argentine filmmaker Eliseo Subiela complained on his Facebook (FB) page that the AFIP wouldn’t approve his request to buy foreign currency to travel to Lima. Several days later, Echegaray told a TV news channel that Subiela was turned down because his tax situation was neither “transparent” nor “regular.” The head of the AFIP noted that the director had filed paperwork with the agency that estimated his annual income in the paltry range of 10,000 pesos. “First, I felt surprised. Then scared,” says Subiela, who says the AFIP dispatched tax inspectors to his film school to carry out an audit. Referring to Echegaray’s description of his taxes, Subiela adds, “What Echegaray says is false, or at least a mistake.”

Argentina has a fiscal secrecy law that restricts what types of taxpayer data can be released publicly. The Subiela case is part of a pattern, says Arnoletto. “If someone talks badly about the government, their [tax] data show up in the press, which is a violation of the fiscal secret law.” Such incidents could undermine the large strides the AFIP has taken over the past decade, says Alberto Abad, who headed the agency from 2002 to 2008, leaving the AFIP after a public disagreement with Echegaray. “The flip side of having all that information is the tax administration’s obligation to abide by the fiscal secrecy law. It’s the only thing that legitimizes the tax collector,” he says. “When it doesn’t have that, it becomes the people’s worst enemy.”

Echegaray shrugs off the controversy, saying AFIP acted correctly in its dealings with Subiela. “If the law permits it, one does not have to justify a thing,” says Echegaray.